Bryan Caplan  

Cowen and Crisis Reconsidered

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Robert Higgs famously blames the growth of government on crises - especially wars and depressions.  I firmly believed in this story for over a decade until I read Tyler Cowen's critique:
The ratchet effect becomes much stronger in the twentieth century than before. Furthermore most forms of governmental growth probably would have occurred in the absence of war. The example of Sweden is instructive. Sweden avoided both World Wars, and had a relatively mild depression in the 1930s, but has one of the largest governments, relative to the size of its economy, in the developed world. The war hypothesis also does not explain all of the chronology of observed growth. Many Western countries were well on a path towards larger government before the First World War. And the 1970s were a significant period for government growth in many nations, despite the prosperity and relative calm of the 1960s.
Tyler's words swiftly changed my mind.  The Swedish case seemed devastating... so devastating I never bothered to check the data.  Last night, however, GMU prodigy Nathaniel Bechhofer informed me that the key facts were right in Econlib's own Concise Encyclopedia of EconomicsGordon Tullock's article on "Government Spending" provides the shocking Swedish statistics:
sweden.jpg

Yes, Sweden stayed out of the actual fighting during the two world wars.  But you'd never know it from their budget!  Sweden spent almost as much avoiding the war as the combatants spent participating. 

For the sake of comparison, check out the U.S. numbers for the same era.  World War II led to a 25 percentage-point spike in government's share of GNP in Sweden, versus 35 percentage-points for the U.S.:

us.jpg

Of course, the history of Sweden is not final proof that Higgs was right all along.  But the seemingly devastating Swedish counter-example is a red herring.  The Swedes didn't fight, but they were still terrified, and they still turned to government to save them.



COMMENTS (17 to date)
Enial Cattesi writes:

I can not understand how someone can be persuaded by Cowen's argument. Yes, Sweden was neutral in the second world war, but it didn't reside on another planet. It was actually quite active in the war playing both sides. This alone should've raise some red flags about his argument.

Don Boudreaux writes:

Nice post, Bryan. But I've never interpreted Bob Higgs's argument to be that government growth requires crises, just that crises are, in fact, a - perhaps the - major spark for such growth. (I confess that I've not read that paper by Tyler. I'll do so.)

Tyler Cowen writes:

It is an odd argument and chart you give, because it directly contradicts the Higgs argument. The wartime crisis does not budget Sweden off its longer-run trend line.

Greg G writes:

I agree with Tyler. I can't see how these charts support your point Bryan. They show us landing today, right where we would have expected to land without the spikes.

MG writes:

I wonder if looking at "the size of government" in terms of its employment-regulatory footprint would support Higgs thesis better. (Of course, counting military employment clearly would auto correlate.) There must be a difference between the the desirability of wealthy societies wanting to provide pubic financed safety nets, and the necessity of having government bureaucracies dictating how to, if not, delivering the goods. This may have been the biggest legacy of big wars.

Jake K writes:

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Glen Smith writes:

I'd always seen Sweden as kind of like the guy who doesn't buy the latest gadgets but sells them to everyone else. He gets to retire in comfort by burning the huge capital nest egg he built.

GregS writes:

How does anyone know where to start drawing the steeper trendline on the Sweden chart? There's an uptick around 1930, but then it comes back down, then rises again. I'm not endorsing Higgs or Cowen here. The Sweden evidence is ambiguous. To quote Arnold Kling, "Welcome to the world of endpoint choice."

Handle writes:

Tyler Cowen's comment seems correct. Except for the trend continuity of the Great Depression. So crises in general do not irreversibly ratchet up the trend in spending, and instead impose temporary shocks. But the particular crisis of the Great Depression seems to have radically and permanently reset the rate at which government growth occurs.

Yancey Ward writes:

Perhaps a Swede could answer- what kind of monetary system did Sweden have before and after the Great Depression? I would argue a harder money regime keeps government in check in the long run, wars or no wars- you return to trend unless the monetary regime change has made it easier for governments to grow without taxes.

Yancey Ward writes:

And I would add that perhaps the wars make subsequent monetary regime change more likely. Is it an accident that the Great Depression followed WWI within a decade?

Robert Higgs writes:

Is it too much to ask that people read my work before criticizing it (or praising it)? This discussion is grotesquely disconnected from what I claimed (and explicitly disavowed) and from the nature of my argument and evidence. Jeez.

Bryan Caplan writes:

Bob, I read Crisis and Leviathan twice, though admittedly it's been a long while. Is there anything specific I said that misunderstands your work? Or are commenters the "people" you have in mind?

Tyler, you are moving the goalposts. Your Swedish example impressed me because it seemed to show that Sweden got big government even though it avoided the crisis of the two World Wars. The data show that Sweden experienced these crisis despite avoiding actual war.

Furthermore, the trend line *does* change in the 30s, and you can see a post-WWII ratchet: Some, but only some, government retrenchment.

Steve Sailer writes:

A lot of the key steps to bigger government were taken just before the Great War, like the income tax amendment in the U.S. and the abolition of the House of Lords' permanent veto on the welfare state in Britain.

Mark V Anderson writes:

Robert Higgs: I can see why you are annoyed that people make judgments without reading your piece, but I don't see that it is necessary to read all the back-up information to make an informed discussion. The point of Bryan quoting your essay is to discuss the two points of view of whether or not government size increase mostly because of crisis. Sorry to say, the fact that one side was initiated by your piece is incidental. What is important are the ideas, not the authors.

Roger McKinney writes:

The experience of one nation blows Bryan’s mind? Couldn’t Sweden just be an outlier? Also, what about ceteris parabus?

Roger McKinney writes:

The publisher's comment on Amazon shows that Higgs had more than just war in mind:

this account demonstrates that the main reason lies in government’s responses to national “crises” (real or imagined), including economic upheavals and, especially, war.

To paraphrase Mencken, if no crisis exists politicians will invent one because they know voters aren't paying attention unless there is one. Then they offer to solve the crisis they have made up.

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